Russia To Build Gwadar To Lahore LNG Pipeline

Pakistan and Russia signed a government-to-government deal on Friday to construct a pipeline to transport liquefied natural gas (LNG) from Karachi to Lahore. Moscow will lend Islamabad $2 billion for the project. Russian President Vladimir Putin is likely to visit Pakistan within the next four months to perform the groundbreaking of the pipeline project, for which Prime Minister Nawaz Sharif had handed over the framework to the Russian president in Ufa earlier this year. Moscow had then sought some time to get a nod from its competent forum. A senior government official said that Pakistan had formally invited Putin to visit Pakistan for the groundbreaking. Russian energy minister has also assured Islamabad of Putin’s visit, he added. During the previous government, the Russian president was to visit Pakistan to sign the Iran-Pakistan gas pipeline financing deal but Islamabad only wanted to sign some memorandums of understanding (MoUs), which upset Russia. “Moscow wanted concrete agreements,” the official said. “Putin postponed his scheduled visit to Pakistan after this.” While Pakistan and Russia have signed a defence cooperation deal earlier, this is first energy deal between the two countries after 30 years which shows the shift in Pakistan’s policy to attract investment to overcome its energy crisis. It is helpful to remember though, that states do not get directly involved in the economic affairs of another country without some sort of geopolitical interest at work. In Russia’s case, these interests are clearly built around promoting stability in Afghanistan, and choking extremist activity within Pakistan. President Vladimir Putin has repeatedly warned of violence and militant activity in Afghanistan spilling over into Central Asia and potentially into Russia as well. Pakistan has a special role to play in promoting stability in the region, and a closer relationship with Russia should help further align our interests around the maintenance of stability in Afghanistan and the elimination of extremist threats from our midst. It is also important to bear in mind that infrastructure investments, particularly in the energy sector, will not yield any benefit if they are not accompanied by domestic reforms, particularly in the pricing regime for natural gas and other fuels. The case of the LNG import terminal, which is continuing to function under ad hoc supplies, is a case in point. Imported gas will be a non-starter in Pakistan so long as it faces a large price difference with domestic gas. For the pipeline that the Russians are offering to build to be a real opportunity, the mistakes of the LNG terminal must be avoided. A lot of homework will be necessary before gas flows can materialise, including price reforms, and the government ought to focus on these right away. A proper model for importing the gas, from third-party access rules to pipeline capacity, and sharing of costs will need to be developed. The project should also seek to eventually take input from the Iranian gas supposed to be piped through the IP pipeline.